Bernanke Talks Tough On Rates, Says Weak Oversight Caused Last Crisis
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Federal Reserve Chairman Ben Bernanke intimated the possibility of raising interest rates to avoid the ramifications of a potential financial bubble over the weekend in a speech to the American Economic Association.
Bernanke also defended his position that the last housing bubble was caused by weak regulation of banks that were offering mortgages to people that would later not be able to repay them, as critics blamed the low-interest-rate policies over the past decade.
"We must be especially vigilant in ensuring that recent experiences are not repeated," Bernanke said in speech Sunday.
According to Bernanke the Fed needs to remain open to using higher interest rates to ensure economic protection from future bubbles.
The approach of attacking potential bubbles would be a new practice for the Fed as past strategy saw the agency clean up after a bubble burst to prevent damage to the broader economy with lower interest rates.
"We have much to learn about how best to make monetary policy and to meet threats to financial stability in this new era," Bernanke said.
The interest rates remain near zero, and will continue to stay at this level according to the Fed as long as the economy continues in its weakened state and inflation stay low. Economists have warned that the extended time frame for the historically low interest rates could allow for the growth a new financial bubble.
Bernanke acknowledged that the policies by the Fed are accommodative to the current economic climate, but vehemently argued that the interest-rate policies are not the main problem.
"Borrowers chose, and were extended, mortgages that they could not be expected to service in the longer term," he said.
Bernanke also defended his position that the last housing bubble was caused by weak regulation of banks that were offering mortgages to people that would later not be able to repay them, as critics blamed the low-interest-rate policies over the past decade.
"We must be especially vigilant in ensuring that recent experiences are not repeated," Bernanke said in speech Sunday.
According to Bernanke the Fed needs to remain open to using higher interest rates to ensure economic protection from future bubbles.
The approach of attacking potential bubbles would be a new practice for the Fed as past strategy saw the agency clean up after a bubble burst to prevent damage to the broader economy with lower interest rates.
"We have much to learn about how best to make monetary policy and to meet threats to financial stability in this new era," Bernanke said.
The interest rates remain near zero, and will continue to stay at this level according to the Fed as long as the economy continues in its weakened state and inflation stay low. Economists have warned that the extended time frame for the historically low interest rates could allow for the growth a new financial bubble.
Bernanke acknowledged that the policies by the Fed are accommodative to the current economic climate, but vehemently argued that the interest-rate policies are not the main problem.
"Borrowers chose, and were extended, mortgages that they could not be expected to service in the longer term," he said.
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